Positive Pay

Summary Definition: An automated fraud detection tool that matches each employer-issued paycheck’s account number, check number, and dollar amount against a list of employer-authorized checks.

What is Positive Pay?

Positive pay is a type of fraud protection used by businesses and financial institutions to safeguard against unauthorized checks being paid.  

Whenever an employer distributes a batch of paychecks, it also sends a list with check details (e.g., check number, account number, and amount) to its financial institution. Then, when someone tries to cash or deposit a paycheck, the financial institution can compare it to the provided list of employer-authorized checks and confirm its authenticity.  

Is Positive Pay Effective?

A positive pay system is an effective tool to use against fake or unauthorized paychecks. It allows financial institutions to flag any errors or irregularities and follow up with the employer before potential fraud is committed, thus protecting itself and the employer. This is because multiple aspects of a submitted paycheck must all align with the positive pay file provided by the employer for the check to be processed. 

Key Takeaways

  • Positive pay is a service where an employer sends an electronic list of all paychecks to a bank so that the bank can confirm a deposited paycheck's authenticity.
  • Multiple aspects of a check must align with the positive pay file for the check to be approved, such as the check number, amount, and account number. 
  • Reverse positive pay is a variation where banks contact clients when a check is submitted for payment instead of the client providing an authorized list in advance.

How Does Positive Pay Work?

To use positive pay, an organization first needs to enroll in a positive pay service offered by its financial institution. From there, the organization can start submitting positive pay files to the financial institution at regular intervals to match its pay periods.  

Different banks can have different preferences regarding the positive pay file’s deadline, formatting, etc. For example, some banks may require file submissions every day while others could require them every week. Some may require certain file types and others may not.    

Regardless, the enrollment in and use of a positive pay system is fairly straightforward. Organizations give the financial institution a list of authorized paychecks, and the institution references that list before processing a submitted check.

If the check doesn’t match the listed details, the bank flags it as an exception and notifies the organization. The organization then reviews the submitted check and tells the bank whether to honor or reject it.

Reverse Positive Pay

Reverse positive pay is a variation of the positive pay system where financial institutions contact enrolled organizations when a check is submitted for payment instead of the organization sending a list ahead of time.  

Unlike a normal positive pay service where the organization sends a list of authorized checks ahead of time, reverse positive pay involves the financial institution sending information about submitted checks to the organization for approval.  

Organizations that use a reverse positive pay service will have additional control over the approval process and be able to review submitted checks individually.

However, this places greater responsibility on the organization to perform the review process itself. If fraud did occur, the organization would be at fault, not the financial institution.  

Positive Pay Fees

Positive pay services typically charge fees to cover the system's security benefits, though the specific costs widely vary. 

Financial institutions may charge a setup fee upon initial enrollment, and most will apply transactional fees for each check review. However, some may offer a monthly or quarterly rate instead of a per-review charge. 

In addition to the fees, organizations opting for a third-party software platform may encounter integration fees to connect it with a financial institution's software. 

Related Glossary Terms


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